Overall business confidence remained low in April although firms report their own activity expectations rose as Omicron disruption eased, the latest ANZ Business Outlook survey shows.
Meanwhile, pricing and wage pressure remain intense, suggesting more inflation ahead.
"Firms remain somewhat wary of the outlook and continue to find the profitability picture hard going in an environment of rising costs and now, in some consumer-facing areas, the prospect of softer demand," said ANZ chief economist Sharon Zollner.
"However, on the plus side, activity levels appear to have picked up as the disruption to labour supply and activity from the Omicron outbreak has passed its peak."
Overall, there was mildly encouraging news for the Reserve Bank, she said.
"While inflation pressures remain extreme, and inflation expectations jumped further, there were some tentative signs of the acceleration in costs easing, at least in the construction sector, which has been leading the domestic cost and inflation charge for some time."
But with plenty of wage and other cost inflation in the pipeline, it would be some time before the RBNZ could conclude that they were getting ahead of the inflation game, she said.
ANZ continues to expect another 50 basis point interest rate hike in May, and steady 25 basis point increases thereafter, taking the OCR to a peak of 3.5 per cent.
The survey showed inflation expectations leapt from 5.5 per cent to 5.9 per cent, with the release of the first quarter Consumer Price Index data having had a clear impact.
Expectations were just 5.7 per cent in the early sample; but rose to 6.6 per cent in the late-month sample.
"Pricing intentions are the best forward-looking indicator for inflation – these eased very slightly but remain sky high, and continue to suggest upside risk to our tentative forecast that CPI inflation may have peaked," Zollner said.
Compared to March, cost expectations fell for construction, but rose elsewhere, most dramatically for agriculture.
Pricing intentions eased sharply for construction, and modestly for agriculture and retail, but rose further for manufacturing and services.
The retail, agriculture and services sectors were all expecting higher wage settlements than in the last 12 months, while manufacturing and construction were expecting smaller increases.
"The RBNZ will be pleased to see some of the heat coming out of the construction sector, which has been a trailblazer for domestic inflation pressures for some time," Zollner said.
Meanwhile the outlook for residential construction was weakening rapidly.
"The divergence between residential and commercial construction intentions is unprecedented," Zollner said.
The retail sector was the most pessimistic about the outlook for profits and their own activity – consistent with the dramatic fall in consumer confidence over the past couple of months, she said.
ASB senior economist Mike Jones noted that, while it was loaded with "familiar themes" of low confidence, cost pressure, staff shortages and inflation, there were some encouraging signs in the data.
"Enough, for now, to keep our forecasts in play for low-but-ok GDP growth, and a slow easing in headline inflation from what we think will be the peak [in the first half of] 2022," he said.
He noted that firms' pricing intentions fell slightly (a net 77 per cent expecting to raise prices from a net 81 per cent in March).
"To be sure, they remain sky-high, and consistent with 7 per cent-odd inflation. But the fact they didn't increase again will provide a modicum of comfort for the RBNZ."
ASB still sees the RBNZ hiking the OCR by 50 basis points in May, followed by a series of 25 basis point hikes.